Interim Results and Operational Update

Unaudited Condensed Consolidated Statement of Cash Flows

(All amounts in US $, unless otherwise stated)

		Six months ended 30 September 2014		Six months ended 30 September 2013
		Unaudited		Unaudited

 

(A) Cash flow from operating activities
Profit before tax		12,957,725		6,240,822
Adjustments
Unrealised exchange loss/ (gain)		(737)		2,521
Interest income		(50)		(8)
Interest expense		-		283,139
Provision for decommissioning cost		111,633		63,037
Depreciation		2,538,780		2,157,254
Changes in operating assets and liabilities
Inventories		1,420,491		1,644,049
Trade receivables		4,201,605		3,062,352
Trade and other payables		3,229,667		1,948,579
Other current and non-current assets		(219,858)		(52,903)
Deferred revenue		430,341		9,797,311
Other liabilities		133,795		(56,710)
Cash generated from operations		24,803,392		25,089,443
Income taxes paid		(239,942)		(237,460)
Net cash generated from operating activities		24,563,450		24,851,983
(B) Cash flow from investing activities
Investment in exploration and evaluation assets		-		(32,899,514)
Purchase of property, plant and equipment		(9,295,829)		13,433,241
Interest received		50		8
Net cash used in investing activities		(9,295,779)		(19,466,265)

 

 

Unaudited Condensed Consolidated Statement of Cash Flows

(All amounts in US $, unless otherwise stated) (Cont'd) 

		Six months ended 30 September 2014		Six months ended 30 September 2013
		Unaudited		Unaudited

 

(C ) Cash flow from financing activities
Repayment of long term debt from banks		(8,660,000)		(8,660,000)
Payment of Interest		(2,547,412)		(2,957,929)
Repayment of finance lease obligations		-		(2,210)
Net cash used in financing activities		(11,207,412)		(11,620,139)
Net change in cash and cash equivalents		4,060,259		(6,234,421)
Cash and cash equivalents at the beginning of the period		977,028		7,546,024
Effect of exchange rate change on cash and cash equivalents		737		1,098
Cash and cash equivalents at the end of the period		5,038,024		1,312,701
Cash and cash equivalents comprises of
Balances with banks		5,038,024		1,312,701

 

 (The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

 

(All amounts in US $, unless otherwise stated) 

1.    INTRODUCTION

Indus Gas Limited ("Indus Gas" or "the Company") was incorporated in the Island of Guernsey on 4 March 2008 pursuant to an Act of Royal Court of the Island of Guernsey. The Company was set up to act as the holding company of iServices Investments Limited ("iServices") and Newbury Oil Company Limited ("Newbury"). iServices and Newbury are companies incorporated in Mauritius and Cyprus respectively. iServices was incorporated in the year 2003 and Newbury was incorporated in the year 2005. Subsequently, the Company was listed on the Alternative Investment Market (AIM) of the London Stock Exchange on 6 June 2008.

 

Indus Gas, through its subsidiaries iServices and Newbury (hereinafter collectively referred to as "the Group"), is engaged in the business of oil and gas exploration, development and production. The Group owns an aggregate of 90 per cent participating interest in a petroleum exploration and development concession in India known as RJ-ON/06 ("the Block"). The remaining 10 per cent participating interest is owned by Focus Energy Limited ("Focus"). Focus entered into a Production Sharing Contract ("PSC") with the Government of India ("GOI") and Oil and Natural Gas Corporation Limited ("ONGC") on 30 June 1998 in respect of the Block. The participating interest is subject to any option exercised by ONGC in respect of individual discoveries (already exercised for the SGL Field as further explained in Note 3).

 

Details of the Company's subsidiaries as at the end of the reporting periods are as follows:

 

Name of Subsidiary	Principal activity	Place of incorporation	Proportion of ownership interest and voting power held by the Group
iServices Investments Limited	Oil and gas extraction, development and production	Mauritius	100%
Newbury Oil Company Limited	Oil and gas extraction, development and production	Cyprus	100%

2.   BASIS OF PREPARATION

The unaudited condensed consolidated interim financial statements are for the six months ended 30 September 2014 and are presented in United States Dollar (US$), which is the functional currency of the parent company and other entities in the Group. They have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required in annual financial statements in accordance with International Financial Reporting Standards as adopted by the European union, and should be read in conjunction with the consolidated financial statements and related notes of the Group for the year ended 31 March 2014.

 

The unaudited condensed consolidated interim financial statements have been prepared on a going concern basis.

 

The accounting policies applied in these unaudited condensed consolidated interim financial statements are consistent with the policies that were applied for the preparation of the consolidated financial statements for the year ended 31 March 2014.

 

These unaudited condensed consolidated interim financial statements are for the six months ended 30 September 2014 and have been approved for issue by the Board of Directors on 24 November 2014

 

The accounting policies applied are consistent with the policies that were applied for the preparation of the consolidated financial statements for the year ended 31 March 31, 2014, except for the adoption of new standards and amendments effective for the Group with effect from 1 January, 2014.

 

Effective 1 January, the Group has adopted the following standards:

- IFRS 10 'Consolidated Financial Statements'; (effective 1 January 2014)

- IFRS 11 'Joint arrangements'; (effective 1 January 2014)

- IFRS 12 'Disclosure of interests in Other Entities'; (effective 1 January 2014)

- IAS 27 (amendment) 'Separate Financial Statements; (effective 1 January 2014)

- IAS 28 (amendment) 'Investments in associates and Joint Ventures'; (effective 1 January 2014)

 

These changes to IFRS effective 1 January 2014 have no impact on the Group's accounting policies or financial statements.

 

 

3.  JOINTLY CONTROLLED ASSETS

The Group is jointly engaged in oil and gas exploration, development and production activities along with Focus. This venture is a jointly controlled asset as defined under IAS 31: Interest in Joint Ventures. All rights and obligations in respect of exploration, development and production of oil and gas resources under the 'Interest sharing agreement' are shared between Focus, iServices and Newbury in the ratio of 10 per cent, 65 per cent and 25 per cent respectively.

 

Under the PSC, the GOI, through ONGC had an option to acquire a 30 per cent participating interest in any discovered field, upon such successful discovery of oil or gas reserves, which has been declared as commercially feasible to develop.

 

Subsequent to the declaration of commercial discovery in SGL field on 21 January 2008, ONGC on had exercised the option to acquire a 30 per cent participating interest in the discovered fields on 6 June 2008.

 

On exercise of this option, ONGC is liable to pay its share of 30 per cent of the SGL field development costs and production costs incurred after 21 January 2008 and are entitled to a 30 per cent share in the production of gas subject to recovery of contract costs as explained below. 

 

The allocation of the production from the field to each participant in any year is determined on the basis of the respective proportion of each such participant's cumulative unrecovered contract costs as at the end of the previous year or where there are no unrecovered contract costs at the end of previous year, on the basis of participating interest of each participant in the field.

 

On the basis of above, gas production for the period ended 30 September 2014 is shared between Focus, iServices and Newbury in the ratio of 10 percent, 65 percent and 25 percent respectively.

 

The aggregate amounts relating to jointly controlled assets, liabilities, expenses and commitments related thereto that have been included in the consolidated financial statements are as follows:

 

	Period ended 30 September 2014 (Unaudited)	Period ended 30 September 2013 (Unaudited)	Year ended 31 March 2014 (Audited)
Non-current assets	442,971,685	373,202,911	408,582,251
Current assets	7,905,776	4,330,567	9,326,267
Non-current liabilities	1,191,579	972,552	1,079,946
Current liabilities	121,289,798	71,321,089	96,847,805
Expenses (net of finance income)	3,229,667	1,948,578	5,684,190
Commitments	-	-	-

The GOI, through ONGC, has option to acquire similar participating interest in any such future successful discovery of oil or gas reserves in the Block that has been declared as commercially feasible to develop.

 

 

4.  ESTIMATES

 

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these unaudited condensed interim consolidated financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those that applied to the consolidated financial statements as at and for the year ended 31 March 2014.

 

 

5.  SEGMENT REPORTING

 

The Chief Operating Decision Maker reviews the business as one operating segment being the extraction and production of oil and gas. Hence, no separate segment information has been furnished herewith.

 

During the six month period ended 30 September 2014, there have been no changes from prior periods in the measurement methods used to determine operating segments and reported segment profit or loss.

 

All of the non-current assets other than financial instruments and deferred tax assets (there are no employment benefit assets, and rights arising under insurance contracts) are located in India and amounted US$ 442,971,685 as at 30 September 2014  (30 September 2013: US$ 373,202,911, 31 March 2014: US$ 408,582,251).

 

The Group has a single product, i.e. the sale of natural gas, which is supplied to a single customer, GAIL (India) Limited in a single geographical segment, being India.

 

 

6.  BASIS OF GOING CONCERN ASSUMPTION

 

As at 30 September 2014, the Group had current liabilities amounting to US$ 143,770,933 majority of which is towards current portion of borrowings from banks and related party, Focus. The Group expects to meet its next year (year ended 30 September 2015) obligation towards existing bank loans from internal generation of cash from operations.

 

The Group has obtained a sanction of additional debt of US$ 180 million subsequent to the period end. Part of this debt is to be used for the repayment of payable towards Focus and balance will be utilised towards further appraisal and development expenditure in the Block. Furthermore, during the period ended 30 September 2014, Gynia has also assured the Group to provide support for any cash requirement to meet its obligations towards banks not met through internal generation of cash. Based on this, the unaudited consolidated interim financial statements have been prepared on going concern basis.

 

 

7.  INTANGIBLE ASSETS: EXPLORATION AND EVALUATION ASSETS

 

Intangible assets comprise of exploration and evaluation assets. Movement in intangible assets was as under:

 

	Intangible assets: exploration and evaluation assets
Balance as at 31 March 2013	18,427,390
Additions	34,737,112
Balance at  30 September  2013	53,164,502
Additions	24,643,692
Transfer to development assets	(77,808,194)
Balance as at 31 March 2014	-
Additions	15,787,912
Transfer to development assets	(15,787,912)
Balance as at  30 September 2014	-

 

The Operator (Focus) has filled integrated Declaration of commerciality (DoC) in November 2013. Based on the policy framework for relaxations, extensions and clarifications at the development and production stage under the PSC regime for early monetization of Hydrocarbon discoveries issued by Government of India, Ministry of Petroleum & Natural Gas on 10 November, 2014, the Operator has submitted a request with Directorate General of Hydrocarbons, for continuing appraisal activities till submission of Field Development Plan in October 2015.

 

The above also includes borrowing costs capitalised of US$ 227,546 for the period ended 30 September 2014 (30 September 2013: US$ 1,029,641, 31 March 2014: US$ 2,810,610).

 

 

           

8.  PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment comprise of the following:

Cost	Land	Extended well test equipment	Development/Production assets	Bunk houses	Vehicles	Other assets	Capital work-in-progress	Total
Balance as at 1 April 2014	167,248	3,731,437	407,065,250	5,384,531	4,804,502	1,478,568	1,406,329	424,037,865
Additions	-	583	37,794,322	-	-	7,605	144,151	37,946,661
Balance as at  30 September  2014	167,248	3,732,020	444,859,572	5,384,531	4,804,502	1,486,173	1,550,480	461,984,526
Accumulated depreciation
Balance as at 1 April 2014	-	1,043,944	6,922,627	3,775,601	2,519,738	1,193,704	-	15,455,614
Depreciation for the period	-	167,671	2,538,780	409,413	346,672	94,691	-	3,557,227
Balance as at  30 September 2014	-	1,211,615	9,461,407	4,185,014	2,866,410	1,288,395	-	19,012,841
Carrying value
As at 30 September 2014	167,248	2,520,405	435,398,165	1,199,5172	1,938,092	197,778	1,550,480	442,971,685

 

Cost		Land	Extended well test equipment	Development/Production assets		Bunk houses	Vehicles	Other assets	Capital work-in-progress	Total
Balance as at  1 April 2013		36,437	3,577,517		309,075,831	5,233,802	4,780,493	1,423,900	2,004,272	326,132,252
Additions		130,811	153,920		97,989,419	150,729	24,009	54,668	426,576	98,930,132
Disposals			-		-	-	-	-	(1,024,519)	(1,024,519)
Balance as at 31 March 2014		167,248	3,731,437		407,065,250	5,384,531	4,804,502	1,478,568	1,406,329	424,037,865
Accumulated Depreciation
Balance as at  1 April  2013		-	709,656		2,149,500	2,943,680	1,778,168	958,165	-	8,539,169
Depreciation for the year		-	334,288		4,773,127	831,921	741,570	235,539	-	6,916,445
Balance as at  31 March 2014		-	1,043,944		6,922,627	3,775,601	2,519,738	1,193,704	-	15,455,614
	Carrying value	167,248	2,687,493		400,142,623	1,608,930	2,284,764	284,864	1,406,329	408,582,251
	As at 31 March 2014
	As at 30 September 2014	167,248	2,520,405		435,398,165	1,199,517	1,938,092	197,778	1,550,480	442,971,685

 

 

Cost	Land	Extended well test equipment		Development/Production assets	Bunk Houses	Vehicles	Other assets	Capital work-in-progress	Total
Balance as at 1 April 2013	36,437	3,577,517		309,075,831	5,233,802	4,780,493	1,423,900	2,004,276	326,132,256
Additions	-	20,295		5,420,517	-	-	43,580	212,982	5,697,374
Balance as at  30 September  2013	36,437	3,597,812		314,496,348	5,233,802	4,780,493	1,467,480	2,217,258	331,829,630
Accumulated depreciation
Balance as at 1 April 2013	-	709,656		2,149,504	2,943,680	1,778,168	958,165	-	8,539,173
Depreciation for the period	-	163,908		2,157,254	420,800	386,533	123,553	-	3,252,048
Balance as at  30 September 2013	-	873,564		4,306,758	3,364,480	2,164,701	1,081,718	-	11,791,221
Carrying value
As at 30 September 2013	36,437	2,724,248	310,189,590		1,869,3222	2,615,792	385,762	2,217,258	320,038,409

 

Borrowing costs capitalised for the period ended 30 September 2014 amounted to US$ 6,126,502         (30 September 2013: US$ 5,420,529 and 31 March 2014: US$ 10,281,753).

 

Depreciation of development and production assets has been charged in accordance with the Group's accounting policy upon commencement of production.

 

 

9.  LONG TERM DEBT FROM BANKS

 

	Maturity	30 September 2014	30 September 2013	31 March 2014
Non-current portion of long term debt	2018/2021	76,453,890	93,375,203	85,266,117
Current portion of long term debt from banks		17,582,006	17,366,180	17,301,889
Total		94,035,896	110,741,383	102,568,006

 

The Group obtained two term loan facilities from a consortium of banks in the amount of US$110,000,000 and US$40,000,000. Against the loan of US$110,000,000, Indus Gas has drawn US$109,904,073 as at 30 September 2014 (30 September 2013: US$109,904,073, 31 March 2014: US$109,904,073) and the balance has lapsed and can no longer be utilised. The other loan facility of US$40,000,000 has been fully utilised as at 30 September 2014 (30 September 2013: US$ 40,000,000)

 

The outstanding debts as of 30 September 2014 include a balance of US$ 58,632,708 (30 September 2013: US$ 74,536,801; 31 March 2014: US$ 66,676,801) repayable in quarterly instalments of US$ 3,930,000 (out of which, as on 30 September 2014; US$ 15,982,006 related to sum payable within 12 months including interest payable of US$ 262,006) with the last instalment falling due in May 2018. This loan bears interest of LIBOR plus 500 basis points payable along with each quarterly instalment.

 

Balance of US$ 35,403,188 (30 September 2013: US$ 37,600,000; 31 March 2014: US$ 36,800,000) is repayable through quarterly instalments of US$ 400,000 (out of which, US$ 1,600,000 relates to sum payable within 12 months period ended 30 September 2015 including interest payable US$ Nil) until March 2019 and thereafter US$3,600,000 until maturity of term with the last instalment falling due in May 2021. This loan bears interest of LIBOR plus 400 basis points payable along with each quarterly instalment.

 

Interest capitalised on loans above have been disclosed in notes 7 and 8.

 

The fair value of the above variable rate borrowings are considered to approximate their carrying amounts.

 

The term loans are secured by all the existing assets of subsidiaries of Indus Gas i.e. iServices and Newbury along with the Group's participating interest in the Block RJ-ON/6 to the extent of SGL field and all future receivables from gas sales.

 

 

10.  RELATED PARTY TRANSACTIONS

 

The related parties for each of the entities in the Group have been summarised in the table below:

Nature of the relationship	Related Party's Name
I. Holding Company	Gynia Holdings Ltd.
II. Ultimate Holding Company	Multi Asset Holdings Ltd. (Holding Company of Gynia Holdings Ltd.)
III. Enterprise over which Key Management Personnel (KMP) exercise control (with whom there are transactions)	Focus Energy Limited

 

Disclosure of transactions between the Group and related parties and the outstanding balances as of 30 September 2014 and 31 March 2014 are as follow:

 

 

Transactions during the period

Particulars		Period ended 30 September 2014	Period ended 30 September 2013
Transactions with the Holding Company
Interest paid		3,680,844		3,446,748
Transactions with KMP
Short term employee benefits		394,499		168,253
Entity over which KMP exercise control
Share of cost incurred by the Focus in respect of the Block		29,801,417		37,846,720
Remittances		4,890,000		33,366,128
Expenses reimbursed		405,510		215,684

 

 

 

Amount outstanding towards related parties

 

Particulars	Period ended 30 September 2014		Period ended  30 September 2013		Period ended 31 March 2014
Entity over which KMP exercise control
Payable to Focus Energy Limited	121,289,798	71,321,089		96,783,891
Payable with the Holding Company
Payables to Gynia Holding Limited*	116,628,106	109,500,515		112,947,262
Payable to KMP
Employee obligation	183,655	-		63,914

*including interest

 

Directors' remuneration

Directors' remuneration is included under administrative expenses, evaluation and exploration assets or development assets in the unaudited consolidated financial statements allocated on a systematic and rational manner.

 

 

11.  PAYABLE TO RELATED PARTIES

 

Related parties payable comprise of the following:

 

	30 September 2014	30 September 2013	31 March 2014
- Current liabilities
Liability payable to Focus	121,289,798	71,321,089	96,783,891
- Non-current liabilities
Liability payable to Gynia*	116,628,106	109,500,515	112,947,262
Other payables	183,655	-	63,914
	238,101,559	238,101,559	209,795,067

 

Liability payable to Focus

 

Liability payable to Focus represents unpaid amount of the cost share of the Group in respect of its participating interest in Block RJ-ON/6 pursuant to the terms of Agreement for Assignment dated 13 January 2006 and its subsequent amendments from time to time.

 

Liability payable to Gynia

 

Liability payable to Gynia represents loans from the parent company for financing the oil and gas operations and meeting other obligations.

 

Other payables to related parties comprise of outstanding balances to associated entities and directors. All the amounts are short term. The carrying value of the borrowings and other payables are considered to be a reasonable approximation of fair value.

 

* Borrowings from Gynia Holdings Ltd. carry an interest rate of 6.5 per cent per annum compounded annually. Out of this loan from Gynia Holdings Ltd., US$ 52 million is subordinated to loans taken from the banks and therefore, is repayable along with related interest subsequent to repayment of bank loans in March 2021. Balance of US$ 54 million is repayable along with related interest in the year ending 31 March 2019. Balance appearing in above table is inclusive of interest payable till reporting date.

 

 

12. EARNINGS PER SHARE

 

The calculation of the earnings per share is based on the profits attributable to ordinary shareholders divided by the weighted average number of shares issued during the period.

 

Calculation of basic and diluted earnings per share is as follows:

 

		Period ended 30 September 2014	Period ended 30 September 2013
Profit attributable to shareholders of Indus Gas Limited, for basic and dilutive		7,231,831	3,423,642
Weighted average number of shares (used for basic loss per share)		182,973,924	182,961,102
No. of equivalent shares in respect of outstanding options		96,882	45,965
Diluted weighted average number of shares (used for diluted loss per share		183,070,806	183,007,067
Basic Profit per share (US$)		0.04*	0.02*
Diluted Profit per share (US$)		0.04*	0.02*

 

*Rounded off to the nearest two decimal places.

 

 

13.  COMMITMENTS AND CONTINGENCIES

 

At 30 September 2014, the Group had capital commitments of US$ NIL (30 September 2013: US$ Nil; 31 March 2014: US$ NIL) in relation to property, plant & equipment - development/producing assets, in the Block.

 

The Group has no contingencies as at 30 September 2014 (30 September 2013: Nil; 31 March 2014: Nil).

 

 

14.  FINANCIAL RISK MANAGEMENT

 

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 March 2014.

 

 

15.  INCOME TAX CREDIT

 

Indus Gas profits are taxable as per the tax laws applicable in Guernsey where zero per cent tax rate has been prescribed for corporates. Accordingly, there is no tax liability for the Group in Guernsey. iServices and Newbury being participants in the PSC are covered under the Indian Income tax laws as well as tax laws for their respective countries. However, considering the existence of double tax avoidance arrangement between Cyprus and India, and Mauritius and India, profits in Newbury and iServices are not likely to attract any additional tax in their local jurisdiction. Under Indian tax laws, Newbury and iServices are allowed to claim the entire expenditure in respect of the Oil Block incurred until the start of commercial production (whether included in the exploration and evaluation assets or development assets) as deductible expense in the first year of commercial production or over a period of 10 years. The Company have opted to claim the expenditure in the first year of commercial production.  During the year ended 31 March 2011, as the Group has commenced commercial production and has generated profits in Newbury and iServices, the management believes there is reasonable certainty of utilisation of such losses in the future years and thus a deferred tax asset has been created in respect of these.

 

16.  FINANCIAL INSTRUMENTS

A summary of the Group's financial assets and liabilities by category is mentioned in the table below.

The carrying amounts of the Group's financial assets and liabilities as recognised at the end of the reporting periods under review may also be categorised as follows:

	30 September 2014		30 September 2013		31 March 2014
Non-current assets
-Other assets	885	885		885
Current assets
-Trade receivables	3,645,798	6,863,677		7,847,404
-Cash and cash equivalents	5,038,024	1,312,701		977,028
Total financial assets	8,684,707	8,177,263		8,825,317
Financial liabilities measured at amortised
cost:
Non-current liabilities
-  Long term debt from banks	76,453,890	93,375,203		85,266,117
-  Payable to related parties	116,628,106	109,500,515		112,947,262
Current liabilities
-  Long term debt from banks	17,582,006	17,366,180		17,301,889
-  Payable to related parties	121,473,453	71,321,089		96,847,805
-  Accrued expenses and other
liabilities	140,532	6,838		126,478
Total financial liability measured at amortised cost	322,277,987	291,569,825		312,489,551

 

 

The fair value of the financial assets and liabilities described above closely approximates their carrying value on the statement of financial position dates.